The Phantom Vehicle: Prejudice in Delayed UM Claim Not Presumed, But Certainly Demonstrable

Case moving up and down the appellate ladder finally put to rest in seeking clarification of “prejudice” in an untimely reported claim.

Prejudice is not presumed by mere delay in report.

However, an insurer claiming prejudice need not demonstrate what an investigation would have uncovered if timely notice had been provided.

In Vanderhoff v. Harleysville Insurance Company, 78 A.3d 1060 (Pa. 2013), the Pennsylvania Supreme Court decided—hopefully for the last time—the fate of an uninsured motorist claim premised upon a phantom vehicle. The court’s decision examined the contours of the prejudice issue when a plaintiff fails to report a phantom vehicle within the 30-day time requirement established by the Pennsylvania Motor Vehicle Financial Responsibility Law (MVFRL).

The case had inauspicious beginnings. The plaintiff was the rear driver in a rear-end automobile accident. Neither car was towed from the scene, and the plaintiff’s vehicle continued to be used without repair following the accident. The plaintiff spoke with the police at the scene, later spoke with his employer and later filed a workers’ compensation claim. In all three instances, he did not mention a third vehicle. However, eight months following the accident, the plaintiff filed a claim against his vehicle’s insurer for uninsured motorists’ coverage based on a phantom vehicle. The story was this: an accident was caused when a phantom vehicle pulled out in front of the car the plaintiff struck, causing it to stop suddenly.

As you may have guessed, the insurer denied the UM claim. Pennsylvania’s MVFRL requires notification of phantom vehicles to the insurer “[w]ithin 30 days, or as soon as practicable thereafter.” 75 Pa. C.S. § 1702. The claim went into litigation and eventually to a non-jury trial. The trial court found that notice was timely based on the “as soon as practicable” safe harbor. The insurer appealed to the Superior Court and obtained a reversal because it convinced the court that the plaintiff could certainly have “practicably” reported the alleged phantom vehicle long before he did. The Superior Court also refused to require a showing of any prejudice. The plaintiff appealed and scored an erstwhile victory on the latter issue: the Pennsylvania Supreme Court reversed, in a split decision, with the majority concluding that prejudice was an essential requirement of a right to deny benefits for an uninsured vehicle under § 1702. It remanded the case for a determination by the trial court of whether the insurer suffered prejudice.

On remand, the trial court entered an order stating that no prejudice had been proven. The Superior Court again reversed, citing a litany of ways in which the insurer demonstrated prejudice. In brief, they related to the impossibility of conducting a day-of or day-after investigation, obtaining 911 tapes before they were destroyed, interviewing witnesses while they could be identified, viewing markings on the road before they faded under traffic and weather, etc. The trial court had held that prejudice was not shown because the insurer could not demonstrate what would have been proven had timely notice been provided. The Superior Court rejected this paradigm, concluding that it was error to require proof of precisely what evidence was lost due to the late notice.

The plaintiff again appealed to the Supreme Court, which reaffirmed its prior holding that prejudice must be demonstrated and will not be presumed by late notice per se. It then held that in this case, the insurer had demonstrated prejudice sufficient to justify a disclaimer of coverage.

The court first re-affirmed its Brakeman case, which predated the MVFRL, and required that an insurer show prejudice when denying a claim for late notice. Because the notice term in an insurance contract is not a negotiated condition, and based on the unequal bargaining positions of insurers and their insureds, a showing of prejudice is required. Thus, an insurer may not simply stand on principle and demand an earlier notice of a claim. This requirement of prejudice was unaltered by the MVFRL’s explicit statutory requirement of timely notice.

The court then analyzed the policies behind the MVFRL’s requirement of timely notice, including the need to retain affordability in the auto insurance market by minimizing fraudulent claims, enabling prompt investigation by both law enforcement and insurance companies, and ensuring the integrity of evidence for litigation. Because of the inherently fact-specific nature of each accident and each investigation, the court concluded that prejudice must always be analyzed on a case-by-case basis. But two black-letter rules are stated in the opinion. First, never is an insurer required to prove what would have been found if timely notice of a claim had been provided. Second, “[w]hile the insurer is always obligated to investigate the case such as it can, where an insured’s delay results in an inability to thoroughly investigate the claim and thereby uncover relevant facts, prejudice is established.” In this case, sufficient prejudice had been shown (apparently for the reasons recounted by the Superior Court, which were quoted at length and not rejected), and the dismissal of the UM claim was affirmed.

In sum, prejudice is never presumed and must be proven. But, the burden is not so high as to require an insurer to prove what the late notice prevented it from discovering.

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.